Vitol and Gunvor disrupt aluminum market with large bets

Two major energy trading firms, Vitol Group and Gunvor Group, are making significant moves in the global aluminum markets. Their positions have raised concerns at the London Metal Exchange (LME) as they have taken on contracts larger than the aluminum available in the exchange’s warehouses. In recent months, both companies have secured long positions in LME aluminum contracts that were nearing expiration. This marks a shift for these energy traders, as they usually do not compete directly with established firms like Glencore and Trafigura. Their entry into the market is noteworthy and has been discussed widely within the industry. Typically, large traders aim to lock in lower prices for physical aluminum. However, since Vitol and Gunvor lack long-term contracts with producers, they face challenges. While many traders close positions before contract expiration, holding them may disrupt the market and affect others with short positions. Their aggressive trading has already impacted aluminum prices, pushing them higher in spot markets. The LME has questioned both firms regarding their large positions, potentially steering them to manage their trades to avoid market disruption. As energy traders invest profits from the current market conditions, they see growth potential in metals necessary for renewable energy and electric vehicles. Alongside their aluminum positions, another major trader, Mercuria, is buying copper and aiming to ship it to the U.S., responding to price disparities caused by potential tariffs. This activity reflects a broader trend where energy firms are expanding into the metals market, looking to capitalize on new opportunities as oil demand fluctuates.